Success rate for business loan applications rises to 80%

New research suggests third of UK small and medium companies plan to raise growth finance in next 12 months

by Megan Dunsby

Updated: Jan 26, 2015 Published: Aug 11, 2014

The success rate amongst small and medium UK businesses applying for finance has risen to 80% in 2014 up from 71% in 2013, according to a new report from Albion Ventures.

Using interviews from 450 small firms, the study found that, despite more companies receiving the funds needed to grow, only one in 10 entrepreneurs had tried to raise finance in the past 12 months compared to 17% in 2013.

The research also concluded that small and medium firms are now moving on from applying for finance to fund working capital – dubbed a “healthier era of business expansion- with a 25% decrease in the number of businesses seeking working capital down to 24% this year.

Designed to provide an overview of the factors that create and impede start-up growth, the report underlined that the next 12 months will see a “sharp increase in demand” for new funding with 33% of small businesses planning to apply for credit; the largest proportion being companies based in Greater London.

In addition, the report found that the number of small and enterprises turning to traditional bank loans or overdrafts for working capital had fallen to 62% in 2014; down by 14% on 2013.

Other lending methods such as mortgages, cash loans from friends and family, and equity investments from venture capital firms and angel investors amounted to 18% of small business funding in 2014.

In terms of sectors, the percentage of retail and distribution companies raiing finance has fallen from 17% in 2013 to 14% this year, as did the number of manufacturing businesses which fell steeply from 26% in 2013 to just 8% this year.

Albion Ventures managing partner, Patrick Reeve, discussed the findings: “Demand for bank finance and the reasons for needing it are key proxies for the health of UK SMEs and there are reasons for optimism on both counts.

“Not only have firms been more successful in applying for finance but their motivations are more about growth than funding working capital.

“Demand for finance is particularly strong among the growing band of so-called ‘threshold’ businesses with turnovers of between £500,000 and £1m, which are on the cusp of becoming established companies.”